Insurers: GST Waiver Alone Not Enough to Deepen Penetration

Insurers: GST Waiver Alone Not Enough to Deepen Penetration

Issue: To assess the long-term impact of the Goods and Services Tax (GST) exemption on individual life and health insurance premiums, with insurance industry leaders concluding that while the waiver aids affordability, it is insufficient on its own to achieve the national goal of deep insurance penetration.

Facts:

• The GST Council announced a tax exemption (reduction to zero) on all individual life and health insurance policies.
• This move aimed to reduce premiums and make insurance more affordable and inclusive.
• The GST waiver did lead to a temporary surge in traffic and online customer acquisition for firms.

Decision:

The chiefs of several life insurance companies agreed that while the GST exemption is a great facilitator that improves affordability, it is “not sufficient to increase the penetration levels” by itself. Sustained growth requires comprehensive action on distribution, product innovation, and cost optimization.

Key TakeDowns:

• Affordability vs. Growth: While the waiver helps bring down prices, insurance is still not viewed as a “pull product” that consumers spontaneously buy. Industry effort is required to keep the benefits “alive in the mind of the customer”.
• Next Steps for Penetration: To increase deep penetration, insurers need to focus on:
  • Product Innovation.
  • Distribution Reforms: Improving reachability, particularly to Tier-2 and Tier-3 cities where most growth potential lies.
  • Cost Optimization: Reducing operational costs to shift from a high-cost to a moderate-cost model.
• Impact of ITC Loss: Insurers confirmed that they are absorbing the adverse financial impact caused by the removal of the Input Tax Credit (ITC) on their expenses due to the GST waiver, though this absorbed cost must eventually be managed by distributors and vendors.
• Term Insurance as Feeder Product: Term insurance is seen as having a “huge opportunity” to become the “feeder product” for customer acquisition, which can then be used for cross-selling and up-selling other insurance products.